RBI Governor Shaktikanta Das on June 7, 2024, said the Monetary Policy Committee has decided to keep the repo rate unchanged at 6.5%. File
| Photo Credit: ANI

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has decided to keep the repo rate unchanged at 6.5%. The decision, taken at the MPC’s meeting on Friday, marks the eighth time in a row that the policy rate has been put on hold to keep the focus on battling high inflation.

The MPC has revised its GDP growth forecast upwards from the earlier 7% estimate to 7.2% for the financial year 2024-2025. It has also decided to remain focused on withdrawal of accommodation to ensure that inflation does not accelerate, while supporting growth.

“These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2% while supporting growth,” Reserve Bank of India (RBI) governor Shaktikanta Das said after the meeting. 

Divided MPC

Mr. Das, along with MPC members Shashanka Bhide, Rajiv Ranjan, and Michael Debabrata Patra voted to keep the policy repo rate unchanged at 6.5% and to remain focused on the withdrawal of accommodation, while their colleagues Ashima Goyal and Jayanth R. Varma voted to reduce the policy repo rate by 25 basis points and for a change in stance to neutral. 

“There were signs of a more divided policy committee, with one additional member voting for a softening in stance as well as policy direction. The majority retained their cautious stance to guide inflation towards the 4% target on a durable basis, despite recent signs of disinflation,” said Radhika Rao, Executive Director and Senior Economist, DBS Bank, commenting on the decision.

Higher growth forecast

According to the MPC, high frequency indicators of domestic activity are showing resilience in 2024-25. The south-west monsoon is expected to be above normal, which augurs well for agriculture and rural demand, but headwinds from geopolitical tensions, volatility in international commodity prices, and geoeconomic fragmentation pose risks to the outlook. 

Taking various factors into consideration, real GDP growth for 2024-25 was projected at 7.2% as compared with the earlier projection of 7%, with the first quarter (Q1) growth estimate at 7.3%; Q2 at 7.2%; Q3 at 7.3%; and Q4 at 7.2%. The risks are evenly balanced.

Elevated food inflation

Emphasising that inflation has seen sequential moderation since February 2024, albeit in a narrow range from 5.1% in February to 4.8% in April 2024, the RBI Governor said that food inflation, however, remains elevated due to persistence of inflation pressures in vegetables, pulses, cereals, and spices. 

“Looking ahead, overlapping shocks engendered by rising incidence of adverse climate events impart considerable uncertainty to the food inflation trajectory,” he said, while announcing the MPC’s decisions. He added that volatility in crude oil prices and financial markets, along with the firming up of non-energy commodity prices, pose upside risks to inflation. 

Taking various factors into account, CPI inflation for 2024-25 is projected at 4.5%, with Q1 at 4.9%; Q2 at 3.8%; Q3 at 4.6%; and Q4 at 4.5%. The risks are evenly balanced.

Mr. Das emphasised that the path of disinflation has been interrupted by volatile and elevated food inflation due to adverse weather events. “Inflation is expected to temporarily fall below the target during Q2:2024-25 due to favourable base effect, before reversing subsequently. The MPC will remain resolute in its commitment to aligning inflation to the 4% target on a durable basis,” he said. 

The MPC reiterated the need to continue with the disinflationary stance, until a durable alignment of the headline CPI inflation with the target is achieved. 

Image for representation
| Photo Credit: Reuters

The Reserve Bank of India (RBI) has decided to facilitate wider non-resident participation in the Sovereign Green Bonds by permitting eligible foreign investors in the International Financial Services Centre (IFSC) to invest in such bonds.

“A scheme for investment and trading in SGrBs by eligible foreign investors in IFSC is being notified separately in consultation with the Government and the IFSC Authority,” Governor Shaktikanta Das announced as additional measures soon after the bi-monthly monetary policy committee meeting on April 5, 2024.

ALSO READ | RBI Monetary Policy LIVE updates

Based on an announcement in the Union Budget for FY 2022-23, the Government of India had issued Sovereign Green Bonds in January 2023. The SGrBs were also issued as part of the Government borrowing calendar in FY 2023-24.

At present, foreign portfolio investors (FPIs) registered with SEBI are permitted to invest in SGrBs under the different routes available for investment by FPIs in government securities.

Image for representation only
| Photo Credit: C. Venkatachalapathy

The Reserve Bank of India has proposed to facilitate cash deposit facility in banks through the use of UPI, an instant real-time payment system for inter-bank transactions through mobile phones.

ALSO READ | RBI Monetary Policy LIVE updates 

“Given the popularity and acceptance of UPI, as also the benefits seen from the availability of UPI for cardless cash withdrawal at ATMs, it is now proposed to facilitate cash deposit facility through use of UPI,” RBI Governor Shaktikanta Das said in the Monetary Policy Statement, released on April 5, 2024.

The Cash Deposit Machines (CDMs) deployed by banks enhance customer convenience while reducing cash-handling load on bank branches. The facility of cash deposit is presently available only through use of debit cards.

Operational instructions regarding cash deposits using UPI will be issued shortly, according to the central bank.

RBI to permit linking PPIs with UPI apps

The RBI has also proposed to permit linking of Prepaid Payment Instruments (PPIs) through third-party UPI applications to provide more flexibility to users.

At present, UPI payments from bank accounts can be made by linking a bank account through the UPI app of the bank or using any third-party UPI application. However, the same facility is not available for PPIs.

PPIs can currently be used to make UPI transactions only by using the application provided by the PPI issuer.

“To provide more flexibility to PPI holders, it is now proposed to permit linking of PPIs through third-party UPI applications. This will enable the PPI holders to make UPI payments like bank account holders,” the RBI said.

Instructions in this regard too will be issued shortly.

The Monetary Policy Committee (MPC) on April 5 decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%. This is the 7th time that the rates have been kept on hold.

The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

Also read: RBI Monetary Policy live updates – April 5

 “These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth,” RBI governor Shaktikanta Das announced after the MPC meeting. 

Stating that the domestic economy was experiencing strong momentum, he said as per the second advance estimates (SAE), real gross domestic product (GDP) expanded at 7.6% in 2023-24 on the back of buoyant domestic demand. 

“Real GDP increased by 8.4% in Q3, with strong investment activity and a lower drag from net external demand. On the supply side, gross value added recorded a growth of 6.9 per cent in 2023-24, driven by manufacturing and construction activity,” he said.

Looking ahead, Mr. Das said, an expected normal south-west monsoon should support agricultural activity. “Manufacturing is expected to maintain its momentum on the back of sustained profitability. Services activity is likely to grow above the pre-pandemic trend,” he said.

“Private consumption should gain steam with further pick-up in rural activity and steady urban demand. A rise in discretionary spending expected by urban households, as per the Reserve Bank’s consumer survey, and improving income levels augur well for the strengthening of private consumption,” he added. 

“The prospects of fixed investment remain bright with business optimism, healthy corporate and bank balance sheets, robust government capital expenditure and signs of upturn in the private capex cycle,” he further said. The Governor said headwinds from geopolitical tensions, volatility in international financial markets, geo-economic fragmentation, rising Red Sea disruptions, and extreme weather events, however, pose risks to the outlook. 

“Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7.0% with Q1 at 7.1%; Q2 at 6.9%; Q3 at 7.0%; and Q4 at 7.0%. The risks are evenly balanced.”

On inflation the Governor said “Two years ago, around this time, when CPI inflation had peaked at 7.8% in April 2022, the elephant in the room was inflation. The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis.”

“In other words, it is essential, in the best interest of the economy, that CPI inflation continues to moderate and aligns to the target on a durable basis. Till this is achieved, our task remains unfinished,” he added

He said the headline softened to 5.1% during January-February 2024, from 5.7% in December. After correcting in January, food inflation edged up to 7.8% in February primarily driven by vegetables, eggs, meat and fish. 

Fuel prices remained in deflation for the sixth consecutive month in February. CPI core (CPI excluding food and fuel) disinflation took it down to 3.4% in February — this was one of the lowest in the current CPI series, with both goods and services components registering a fall in inflation, he said. He said going ahead, food price uncertainties would continue to weigh on the inflation outlook. An expected record rabi wheat production in 2023-24, however, will help contain cereal prices. Early indications of a normal monsoon also augur well for the kharif season. 

“On the other hand, the increasing incidence of climate shocks remains a key upside risk to food prices. Low reservoir levels, especially in the southern states and outlook of above normal temperatures during April-June, also pose concern. Tight demand supply conditions in certain pulses and the prices of key vegetables need close monitoring,” he said. 

“Fuel price deflation is likely to deepen in the near term following the recent cut in LPG prices. After witnessing sustained moderation, cost push pressures faced by firms are showing upward bias. The recent firming up of international crude oil prices warrants close monitoring. Geo-political tensions and volatility in financial markets also pose risks to the inflation outlook,” he added. 

“Taking into account these factors and assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5% with Q1 at 4.9%; Q2 at 3.8%; Q3 at 4.6%; and Q4 at 4.5%. The risks are evenly balanced. 

The MPC also noted that domestic economic activity remains resilient, backed by strong investment demand and upbeat business and consumer sentiments. Headline inflation has come off the December peak; however, food price pressures have been interrupting the ongoing disinflation process, posing challenges for the final descent of inflation to the target. Unpredictable supply side shocks from adverse climate events and their impact on agricultural production as also geo-political tensions and spillovers to trade and commodity markets add uncertainties to the outlook, Mr Das said. 

“As the path of disinflation needs to be sustained till inflation reaches the 4% target on a durable basis, the MPC decided to keep the policy repo rate unchanged at 6.50% in this meeting,” he added. 

Stating that monetary policy must continue to be actively disinflationary to ensure anchoring of inflation expectations and fuller transmission, he said the MPC would remain resolute in its commitment to aligning inflation to the target. 

“The MPC believes that durable price stability would set strong foundations for a period of high growth. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth,” he said. 

The Reserve Bank of India has decided to retain the policy rate for the fourth time in a row, RBI Governor Shaktikanta Das said today, adding that the central bank is closely monitoring inflation. The governor said the Monetary Policy Committee (MPC)

Here are the top quotes from the RBI governor’s address:

Mumbai:

The Reserve Bank of India (RBI) today decided to keep its key lending rate unchanged at 6.5% for the fourth consecutive time. The decision was taken unanimously at the central bank’s Monetary Policy Committee (MPC) meeting, said RBI Governor Shaktikanta Das.

This means the loan interest rates too are likely to remain unchanged.

The overall inflation outlook is clouded by uncertainties, said the RBI Governor, adding that the banking system remains resilient.

“The overall inflation outlook is clouded by uncertainties from the fall in Kharif sowing for certain key crops like pulses and oil seeds, lower reservoir levels and volatility in global food and energy prices,” said Mr Das.

The RBI expects retail inflation to be 5.4% for the current financial year and reduce to 5.2% in the first quarter of the next fiscal.

The Monetary Policy Committee has unanimously decided to keep the policy repo rate unchanged, RBI Governor Shaktikanta Das said in Mumbai on August 10, 2023.
| Photo Credit: Emmanual Yogini

The Monetary Policy Committee (MPC) of the Reserve Bank of India on August 10 decided unanimously to keep the policy repo rate unchanged at 6.50%. 

Consequently, the standing deposit facility (SDF) rate remains at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%. 

The MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.

Explaining the MPC’s rationale for these decisions on the policy rate and the stance, RBI governor Shaktikanta Das in his statement said, “Headline inflation, after reaching a low of 4.3% in May 2023, rose in June and is expected to surge during July-August led by vegetable prices.”

“While the vegetable price shock may reverse quickly, possible El Niño weather conditions along with global food prices need to be watched closely against the backdrop of a skewed south-west monsoon so far. These developments warrant a heightened vigil on the evolving inflation trajectory,” he said. 

“The cumulative rate hike of 250 basis points undertaken by the MPC is working its way into the economy. Nonetheless, domestic economic activity is holding up well and is likely to retain its momentum, despite weak external demand. Considering this confluence of factors, the MPC decided to remain watchful and evaluate the emerging situation,” he added. 

Consequently, the MPC decided to keep the policy repo rate unchanged at 6.50% with preparedness to act, should the situation so warrant, Mr. Das said. 

He said the MPC remained resolute in its commitment to aligning inflation to the 4 per cent target and anchoring inflation expectations.

Taking all various factors into consideration, the Governor said the real GDP growth for 2023-24 is projected at 6.5% with Q1 at 8.0%; Q2 at 6.5%; Q3 at 6.0%; and Q4 at 5.7%. Real GDP growth for Q1:2024-25 is projected at 6.6%. The risks are evenly balanced.

Given the continuing external uncertainties, the latest CPI inflation projection for 2023-24, assuming a normal monsoon, has been revised to 5.4%, with Q2 at 6.2%, Q3 at 5.7% and Q4 at 5.2%. CPI inflation for Q1:2024-25 is projected at 5.2%. The risks are evenly balanced.

The Governor said considering the difficulties in major economies, the Indian economy is better placed. “India can become the new growth engine of the world,” he said.